Gallicoop Packaging Plant Paves way for Further Expansion

Levente Hörömpöli-Tóth

Thursday, July 13, 2017

No turkey receives a presidential pardon in Hungary as happens in the United States, but consumption of the meat is an important driving force of the local meat processing industry. Gallicoop is leading the charge to sweeten that appeal even more.

István Erdélyi, Gallicoop Zrt. CEO.

Gallicoop Zrt. is no newcomer to the meat processing market. It has been around for 28 years and quickly became market leader in the turkey segment. Slaughtering 42,000 tons of turkey per year, Gallicoop carves out for itself a 42% of the turkey pie in Hungary.

“Some three million animals finish their ‘career’ in our plants annually,” István Erdélyi, CEO tells the Budapest Business Journal. He says he is proud of the fact that his company, seated in a small countryside town, Szarvas (160 km southeast of Budapest), gives work to more than 1,000 people and has a turnover of HUF 33.5 billion a year. In 2017, a new packaging plant will be built with an investment of HUF 1.6 bln, from which HUF 800 million comes from government funds.

“The goal is to speed up serving our partners and to meet volume-driven and quality demand,” Erdélyi explains. There is a lot to make up for. The recent wave of bird flu indirectly affected the company as well, and as a result important markets in Japan, South Korea and South Africa were quickly cut off. As Erdélyi says, it took very hard work to build a reputation there, but now they must start all over again from scratch. The possible date of market reentry is September.

Permits the Real Hurdle

Luckily, things could hardly look better in the CEE region. In Slovenia, Croatia, Romania and Czech Republic basically low quantities of turkey are being processed, so with consumer demand growing, the opportunity presents itself to gain a foothold there. By now, these places are of equal importance to Western European markets.

The list of countries where Gallicoop exports is very long. Three years ago, it totaled as many as 47 countries worldwide, among them exotic destinations like the Seychelles or Taiwan.

“The only factor that still restricts our opportunities is our size,” Erdélyi notes. “We might be large by Hungarian terms, but by European standards we count as mid-sized only.”

That said, Gallicoop is certainly big enough to prevail on super-sized markets like Russia. “We liked supplying our Russian partners with our goods; the problem is that as a result of the embargo we were excluded from this market,” the CEO says. Russia has been forced to take measures and it will become self-sufficient in terms of poultry by next year.

Another giant, China could be an even more promising target. If every one of its 1.4 billion residents would like to have a slice of turkey breast, this would represent a challenge even for the United States. However, for Hungarian companies to enter the Chinese market is not easy, mostly because of the administrative hurdles.

“Szarvas and the Chinese city of Wushi are twinned towns, and if we could start delivering only to Wushi with a population of eight million, we would be doing great,” Erdélyi notes. But currently, the Chinese authorities will not authorize transport. The representatives of Hungarian trade diplomacy have been doing their best, but a real breakthrough is yet to come. Relations between the two towns are good, regardless, which gives hope that one day a positive turn of events might be realized.

Technology Upgrades

If that scenario does play out nicely, Gallicoop must be prepared, and that, in part, is what the building of the new packaging plant is also meant to serve. “We are talking about a very capital-intensive industry,” Erdélyi adds.

“In order to survive you need to improve efficiency and upgrade technology continuously.” Delaying such upgrades might work for two or three years, but during that time you would lag behind so much that it would be impossible to catch up later on.

Of course, skilled labor is key to making ambitious plans come true. Gallicoop cannot complain for now, but it has been increasingly difficult to find the right candidate for the right position. The labor shortage is apparent regardless of skill sets: it is equally problematic to recruit IT experts or plant managers as people for manual labor.

The industry is confronted with a double problem. Prior to 2010, vocational training was neglected, while the older generation of experts had retired. Now there is a delay while the young graduate, but even when they do, there will be hardly anyone to learn from.

Mid-term plans still look truly ambitious. “The packaging plant will enable us to use every opportunity, and we can invest those 30,000 tons of meat with more added value,” Erdélyi says. “In the case of breaded meat, our maximum capacity is 5,000 tons. An additional extension of production is based upon realistic market demands. Our current strength is attributed to the fact that we have always been reliable partners,” the CEO concludes.

“Quality, service and the ability to deliver on time have a strong value which is appreciated on every market, and this is what we are planning to maintain.”

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